The California Public Utilities Commission (CPUC) today approved the proposed merger of Pacific Telesis (Telesis) and SBC Communications (SBC) concluding that it provides economic benefits for ratepayers and the state, and is unlikely to adversely affect competition in California.
Public Utilities Code section 854 requires the Commission to find the merger provides short term and long term benefits, is in the public interest, and will not adversely affect competition. The Commission then must equitably allocate the forecasted economic benefits which fall under its authority between shareholders and ratepayers, with ratepayers receiving at least 50 percent of the benefits.
The Commission finds that the merger will benefit shareholders, the financial condition and management quality of Telesis and Pacific, and consequently the California economy. It will not harm management quality or the quality of service and there is no evidence that utility employees will be treated unfairly or unreasonably due to the merger.
The $495 million figure is based on forecasted economic savings from services, such as local and local toll phone service, which are not sufficiently competitive now or in the foreseeable future, drawn out to 5 years. Market forces are expected to produce subsequent additional savings. The Commission decided upon this distribution of the benefits of the merger because telecommunications services are at varying degrees of competitiveness.
Of the $248 million, $213.5 million will be returned to Pacific's customers through a rate reduction in their monthly bills estimated at $3/customer/year for the next five years, and $34 million will be used to fund the Community Partnership Commitment.
The Community Partnership Commitment is an agreement with over 100 community and nonprofit organizations under which Pacific promises to fund, over a 10-year period, $50 million in consumer education efforts and an additional $32 million for other activities to ensure service to underserved California communities.
Pacific is to allow other community-based organizations that did not sign the CPC to apply for funding from the CPC. Any money remaining in the fund at the end of seven years is to be distributed to entities or funds that promote the Commission's goals of universal service for underserved communities.
Prior to its approval of the merger today, the Commission held seven public participation hearings in Eureka, Fresno, Pasadena, Riverside, Sacramento, San Diego and San Francisco seeking public comment on the proposed merger, obtained the required Advisory Opinion from the State Attorney General that the merger will not adversely affect competition, and held 23 days of evidentiary hearing.
The merger is intended to improve the competitiveness of both companies, and the financial condition of Telesis and Pacific and consequently, their customers. It will create the second largest local phone service provider in the country (following the recent approval of the NYNEX/Bell Atlantic merger) and the sixth largest telecommunications firm in the world.
Telesis will become a wholly-owned subsidiary of SBC.
Pacific continues to be a subsidiary of Telesis. Sixty-six percent of the merged company will be owned by SBC's current shareholders, and 34 percent by Telesis' current shareholders. There is no anticipated transfer of property or purchase of assets. The combined assets of the companies would be $22 billion.
Pacific serves 75 percent of California residential phone customers. SBC owns local phone companies in Texas, Missouri, Oklahoma, Kansas and Arkansas, offers wireless services under the Cellular One brand name in 27 markets other than California including Chicago, Boston, Baltimore and Washington, D.C. and has cable TV operations in Virginia and Maryland, and shares of telecommunications businesses in Mexico, Chile, South Korea, Australia, France, South Africa and Israel.
SBC has made a written promise to Telesis to establish four new operating headquarters - for the long distance company, the international services company, an Internet company, and an integrated administrative and support services company - in California, and create at least 1,000 new jobs in California at Telesis companies. Pacific's headquarters will remain in California.
Both SBC and Telesis have committed to maintain and improve the quality of service to California customers, expand service to ethnic markets, continue workforce diversity and invest in Pacific's infrastructure.
With the CPUC approval today, the companies have obtained all required government approvals. The Department of Justice concluded in November 1996 that the merger would not violate federal antitrust law, and the Federal Communications Commission approved the merger in January 1997.